Improving Costs at Your Medical Practice Through Lean Management

January 15, 2014

Applying lean thinking is becoming more prevalent as declining reimbursements and health reform pressures drive practices to operate more efficiently and at lower cost.

Lean management principles were founded in the manufacturing world based upon the belief that there is a significant amount of lag time, or waste, in the process of making something. This waste can be eliminated and thus produce a better product at a lower cost. Applying this theory to running a medical practice is becoming more prevalent as declining payer reimbursements, changes in patient demand for care, and health reform pressures have been the driving practices to operate more efficiently and at lower cost.

Lean theory suggests there are seven kinds of waste (the Japanese term is muda):

1. Transport (moving things that are not actually required to complete the process)

2. Inventory (too much or not in the right place)

3. Motion (people or equipment moving more than is required to perform the process)

4. Waiting (waiting for the next step in the process)

5. Overproduction (production ahead of demand)

6. Over-processing (resulting from poor service design)

7. Defects (the effort involved in inspecting and fixing defects)

From this overview you can consider what you could do better and more effectively to produce a better service for your patients. But don't forget, an important part of lean methodologies is to also control costs. One thing every practice should understand is the fact that, for every knowledge worker (read: employee), 25 percent of daily work is wasted. If you accept that, you can bring about cost savings by asking your employees to understand the processes they currently follow and to think about ways to improve them.

Your practice should no longer accept the mantra: "We've always done it that way" or "That's how I was taught to do it." These phrases indicate that your staff members are willing to accept things as they are and are unwilling to accept change as possible.

A simple lean management tool your practice can use is the "5 Whys," which is a question-asking technique that allows employees to understand the cause and effects of their "problems" at work. Successively asking "why" will move the employee from an entrenched position to the real reason for her difficulty; this may reveal there are steps in the work process that need not be done, or that could be done by someone else at a different time. The end result is a change in the process. Change most often results in improved patient care and significant cost reduction by eliminating duplicate work or a poor work process that causes extra work later on.

For example, if exam rooms are rearranged so that supplies are more easily accessible and are stored in the same location, in each room, you will reap greater efficiencies - as well as better inventory control. Interruption of patient flow to search for an instrument or medication is a true waste of physician time, which ultimately results in greater patient wait times.

It is easy to say "let's cut overtime" when asked to control costs. Yes, this does save the practice money, but does it really accomplish the goal of controlling costs practice wide? This can only be accomplished through a culture that involves each staff member - asking for their input and support. Management should ask, "What are we doing wrong?" What could be done better?" "How can we improve things in our practice?" Once the ball starts rolling, the outcomes will be phenomenal. I have seen significant cost savings at practices that adopt these measures - from 7 percent to 12 percent. I have also known practices that adopt a lean philosophy to see one or more extra patients per day. By eliminating waste these practices can bring in close to $20,000 per year in extra income.

Lean can work if you adopt the culture, involve staff members, commit to improving your operation, and walk the walk - not just talk the talk. This leads to long-term success and in today's world, survival.

Owen Dahl, FACHE, LSSMBB, is a nationally recognized medical practice management consultant and author of "Think Business! Medical Practice Quality, Efficiency, Profits" and "The Medical Practice Disaster Planning Workbook," and coauthor of "Lean Six Sigma for the Medical Practice: Improving Profitability by Improving Processes." He can be reached at odahl@owendahlconsulting.com or 281 367 3364.